September 4, 2019
The Miles Franklin Newsletter
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From The Desk Of David Schectman
I contend that JPMorgan has, singularly, amassed extraordinarily large quantities of physical gold and silver over the past 6 to 8 years. On Wednesday, I pointed out that JPMorgan has an open profit on its 20 million oz net gold position of more than $6 billion on the $300 rally in gold above its $1200 average acquisition cost. – Ted Butler
David's Commentary (In Blue):

As of last April 1, Gold’s status as a Tier 1 asset has been restored.

The new Basel III rules once again make gold a Tier 1 asset for commercial banks - compared to the Tier 3 ranking it held before. This means PHYSICAL gold will count as capital the same as a treasury bond. 189 banks follow the rules established by the BIS.

We talked about this earlier this year and predicted this would substantially increase demand for PHYSICAL gold. Were we right?
Central banks, led by Poland, China and Russia, bought 374 tonnes of gold – the largest acquisition of precious metals on record by public institutions in the first half of 2019. Central banks accounted for nearly one-sixth of total gold demand over that period.
With the recent trade war and tariffs and the Federal Reserve lowering interest rates, money is pouring into gold at a rate not seen for a decade. The move up in gold is not a fluke or an anomaly. There are real reasons for the renewed interest in gold. 
Gold will be explosive, unlike anything we’ve seen.

We’re currently in the last phase of a gold bull rally, and this phase will see the
most upside action.

“I think we’re in the third and final phase of the gold market that’s started in 2001, and this will be the most explosive phase for gold,” - Frank Giustra, chairman of Leagold. 
Three months ago gold broke out of its six-year base and took off. 
Gold is at all-time highs in 73 different countries. 

According to Tom Dyson, on Tuesday, the gold price hit an all-time high in the euro area, at €1,390 per ounce.

But there are still 56 countries left where the gold price is NOT yet at an all-time high. Many of them have pegged their currencies to the dollar.

Here’s a list of some of them (numbers in parentheses show how high gold has to rise to hit an all-time high):

  • United States (23%)
  • Bangladesh (8%)
  • Switzerland (10%)
  • China (10%)
  • Guatemala (24%)
  • Israel (28%)
  • Iraq (19%)
  • Iceland (15%)
  • Cambodia (21%)
  • Laos (11%)
  • Vietnam (6%)
  • Thailand (19%)
  • Singapore (7%)
Dyson asks, “Why is the price of gold rising around the world?”  His answer is,

Many countries are about to weaken their currencies. And it starts with America.

Look at Trump’s recent tweets. Or the U.S. government’s $22 trillion in debt (which is effectively a massive bet on the dollar losing value). America needs a weaker dollar to win back industry from overseas and keep the credit flowing.

Look at the Chinese, who want their products to seem cheap in the rest of the world. Or the Japanese and the Germans, who compete with the Chinese. Or the Brits, who are about to Eurexit …

We’re entering an era of “competitive devaluations” or “currency wars.” Gold will be the only practical way to preserve purchasing power.

The markets are starting to sense this, I think, but it’s still just a trickle. Yet as more and more people buy gold, we get closer to the tipping point … the bursting dam … the avalanche.

That’s the moment when the idea cascades and there’s a stampede into gold. Gold will go far higher than it is today … maybe even double or triple.

We’re not there yet. But it feels like the moment is getting closer.
Here is another big event that will affect the price of gold.
Fed Restarts Bond Buying as Economy Slows. Is QE4 Here?
For the second week in a row, the U.S. Federal Reserve purchased Treasury bonds — after 250 straight weeks without buying while trying to tighten monetary policy — leading to speculation that QE4 has started.
What is QE4?
Long-time readers probably know that QE stands for quantitative easing, where the central bank injects new money into the economy by buying U.S. Treasury bonds. The Fed previously went through three phases of bond buying in 2013 and 2014, so QE4 would just be the latest phase.
The latest weeks of bond buying include about $14 billion worth of bonds bought on credit, a big difference from the zero purchases made since October of 2014
The Fed was supposed to engage in QT, quantitative tightening, by letting the bonds roll off its balance sheet until September, but stopped the program in March.
The central bank then cut its benchmark interest rate in July for the first time since 2008 after evidence showed the economy and global economies were beginning to slow.
What we don’t know is how long the Fed will keep purchasing bonds, but it shouldn’t be a surprise that it is doing so again after constant browbeating by President Donald Trump, who has called for rates to be slashed as much as 1% in addition to restarting QE.
It’s too early to know whether the Fed will continue purchasing bonds, but a $14 billion buyback in just two weeks is significant.
The Berning Platform summed it all up beautifully.
I’ve been wrong for ten years because I thought rationality would come back into style after the second crash in eight years caused by the Federal Reserve and their minions in Washington D.C. Instead, they double downed on their debt dependent debauchery. The world has gone mad and I’ve been left demoralized, depressed and now detached.

No one blinks an eye at $22 trillion in debt, trillion dollar annual deficits, 0% interest rates for ten years, $17 trillion of negative interest debt in the world, retro-active adjustments to GDP and savings rate calculations to make them more positive, 40% of the working age population not working – but unemployment reported as 3.7%, inflation reported at less than 2% when the average person experiences inflation in excess of 5%, corporations using their billions in tax cuts to buy back stock to boost their stock price, a military waging undeclared wars across the globe, an out of control surveillance state monitoring our communications, media companies using propaganda and censorship to push their new world order agenda, and $200 trillion of unfunded liabilities that cannot be honored.

Facts won’t matter until they matter. I wonder what historians fifty or one hundred years from now will say about this profoundly corrupt, aberrational, willfully ignorant episode in world history. How could we be so stupid, egotistical and disinterested in the fate of future generations by wasting the wealth of the unborn to live above our true means today? The selfishness, greed and myopia of those steering the ship of state, and the willingness of the masses to go along with the lies as long as they can be distracted and entertained by their phones is mind numbingly ludicrous in my opinion.
Gold jumped and stocks tanked when tariffs were announced on Chinese imports. Trump said don’t worry, we will resolve this. Turns out Trump lied and the trade war is not being resolved - it is escalating. The trade war and tariffs are still in play. Will the traders come to their senses and start buying gold and selling stocks? Based on what happened yesterday, the answer may actually be a resounding “yes.” Nah, I’m giving them too much credit. Their history is that they do not look at long-term fundamentals. They buy and sell based on Trump’s latest tweet or the latest rumor coming out of the Fed. Assuming the trade war will not end soon and will only intensify, shouldn’t the first reaction be gold up and stocks down? Fast forward to September 3. Here it is on Tuesday at 9:30 a.m. and the Dow is down 370 points and gold is up $14 to a new seven-year high at $1542.5. The road to $1,600 is wide open and the market forces are smiling on precious metals and frowning on stocks. 
Who will blink first? Somehow I don’t think it will be the Chinese. Trump hates to lose so the trade war should go on for quite a long time. The result for the U.S. will be rising prices and a damper on the stock market. That is more fuel for the third leg of the gold bull market.
As expected, Chinese state media on Sunday knocked the U.S. for the continuing tariffs, arguing they would hurt American interests as well, according to Reuters.

"The United States should learn how to behave like a responsible global power and stop acting as a ‘school bully,’" the official Xinhua news agency said, Reuters noted.

China has repeatedly slammed US pressure tactics, with signs that its officials are girding for a prolonged confrontation.

“China’s determination to fight against the U.S. economic warmongering has only grown stronger, and its countermeasures more resolute, measured and targeted,” according to a commentary by the official Xinhua News Agency after the tariffs kicked in. One thing that “White House tariff men should learn is that the Chinese economy is strong and resilient enough to resist the pressure brought about in the ongoing trade war.”
Yes, things are changing for gold. When was the last time you heard the "Banks of America" and Goldman Sachs issue bullish statements on gold? GS says Peak Gold happened four years ago and there are only 20 years of gold supply left. They see gold hitting $1,600 this year. I think that is very conservative.
By Zero Hedge
What a difference a few years makes. Back in the summer of 2015, a WSJ op-ed writer, who somehow was unaware of the past 6,000 years of human history, infamously and embarrassingly said "Let’s Be Honest About Gold: It’s a Pet Rock." Fast forward to today, when with every central bank once again rushing to debase its currency in what increasingly appears to be the final race to the debasement bottom, gold has emerged as the second best performing asset of the year... and at the rate it is going -4th in 2017, 3rd in 2018, 2nd in 2019 - gold will be the standout asset class of 2020.
As Bank of America writes in “anatomy of two gold bull markets,” “The risk of quantitative failure, which was not a concern in 2008, makes gold an attractive asset.”
As everyone knows, debt levels have continued to increase, making it more difficult for central banks to normalize monetary policy. Which brings us to BofA's conclusion: "We fear that this dynamic could ultimately lead to "quantitative failure", under which markets refocus on those elevated liabilities and the lack of global growth, which would in all likelihood lead to a material increase in volatility." How does gold fall into this: "At the same time, and perhaps perversely, such a sell-off may prompt central banks to ease more aggressively, making gold an even more attractive asset to hold."
In other words, as the world approaches the financial endgame and central banks are out of ammo besides just doing more of the same - that led the world to the current catastrophic state - gold will be the biggest beneficiary of the upcoming financial cataclysm. And, no, this is not some fringe blog predicting the apocalypse, this is the prediction of one the 4 largest US banks.
The truth will win out in the end. The “real numbers” below tell the story. The brain-dead hedge funds use the “official numbers.” but for me, I’ll stick with the Shadowstats data. 
Bogus Official Numbers  vs.  Real Numbers  (per 

Annual U.S. Consumer Price Inflation  reported August 13, 2019
1.81%    /    9.53%

U.S. Unemployment  reported August 2, 2019
3.71%    /     21.00%

U.S. GDP Annual Growth/Decline  reported August 29, 2019
2.28%      /      -1.92%

U.S. M3  reported August 8, 2019 (Month of July 2019 (e), Y.O.Y.)
No Official Report /(e) 5.65% (i.e., total M3 Now at  $19.901 Trillion! )
Gold and silver sales from the U.S. Mint are virtually non-existent. The retail customer has not yet returned. The ETFs are the preferred destination of the hedge funds and the new Wall Street investors. 
Look at it this way. Most of the younger investors have a money manager or a bank directing their portfolio who never suggest owning physical gold and silver. They may suggest SLV or GLD. That way they can switch their clients back into stocks and do not lose control of the funds. Inflows into bullion-backed ETFs topped 100 tonnes in August, the most in six and a half years! It was the third straight monthly increase. 
That reminds me that most investors just don’t understand gold and silver or why it should be in a well-balanced portfolio. They see gold and silver as just another asset, owned in a dollar-based form. The fact that they get back dollars instead of gold or silver when they sell doesn’t even enter into their thought process. Their broker or money manager says, “you need some gold, so let me put you into GLD.” That is not the same as buying physical gold. Where is their protection against a collapsing dollar? If you are buying gold as your financial insurance then buy physical gold (or silver). Otherwise you are just moving your finances around from one dollar-based asset to another dollar-based asset. You do not own gold. There are those - like Bill Holter and Jim Sinclair – who talk about the Great Reset, the day that gold goes to “no bid.” If you don’t own it (in physicals in your possession) you will never be able to buy it, at any price. Do you think that view is unrealistic? Let’s hope so, but then do you think your home will burn down? Yet you have insurance to cover that remote possibility too. The truth is, we will never sell physical metals to most of the traditional investors. Millennials who are waiting in the wings know nothing about the Great Depression, WW2 or the role of gold as money. Our generation, the Baby Boomers, is rapidly shrinking and we are the ones who understand history and the need to own gold. The economy and the stock market will have to go thru massive loses before the new younger buyer discovers gold and silver.
Here is a sign that the wealthy are cutting their spending. They are getting nervous – not nervous enough to buy gold yet, but they sense that things are coming unglued. A friend of mine recently attended the Monterey Pebble Auctions. This year their sales were down 34% from previous year, with $254M in sales. These are the rich who usually spend freely for their “toys.” The highest price paid for cars in the auction were $19M and $17M for a Porsche and McLaren. Check out the following article by Robert Frank:  New recession warning: The rich aren't spending

To understand the current period, I recommend that you understand the workings of the 1935-45 period closely, which is the last time similar forces were at work to produce a similar dynamic.

...central bankers and mainstream Economists... are outright hostile to gold (as bonds). They really dislike markets which have the potential to tell the world how much they’ve screwed up ...
Now it’s time for a few words on silver. Let’s start with – I can’t believe my eyes! The most recent gold to silver ratio is down to 79.62 to 1 and, as we have predicted, it’s falling. It’s still not too late to swap some gold into silver. We believe silver will hit $50, for starters. At the current ratio, that would mean gold would have to sell at $4,000 to hold the current ratio. That, dear readers, is not going to happen. Silver at these prices is still too cheap.

Who better to talk about silver than Ed Steer. Here are his latest thoughts on gold’s little sister.
It looks like 'business as usual' despite the fact that the Big 8 traders...sans JPMorgan...are sitting on record high unrealized losses, as the margin calls continue to pile up...a fact that Ted has been talking about for the last week or so.
These overbought conditions in both gold and silver  must  be resolved one way or another...either by a coordinated engineered price smash to the downside one more time...or one or more of the smaller commercial traders can't take anymore financial pain -- and are forced to cover and prices explode to the upside. There's no third option.
82.86 gold/silver ration
With the last trading day of the month concluding we can look at the overall performance of individual assets in the precious metals complex. What we see is a break from the traditional correlation between gold and silver. While both of these precious metals had a stellar month, silver’s price gain dwarfed that of gold. Gold gained a respectable 6% in trading this month; however, silver was able to gain double digits with a monthly price advance of 11%.
While it is not unusual for both gold and silver to run in tandem to the upside, with silver having a larger percentage gain than gold, it is unusual for the precious white metal to have percentage gains almost double that that of gold.
Another interesting component as it relates to gains in gold and silver this month is that gold traded to a 6-½ year high earlier this week, and although silver’s performance dwarfed the gains on a percentage basis in gold, silvers monthly high matches the monthly high achieved in February 2017.
For those of you who don’t believe in owning gold, check this out. This is pretty impressive. Most people have no idea how gold performs over time. And in all currencies. Gold is money. Gold is the standard. Gold doesn’t move up or down. It’s just a matter of how much currency it takes to buy an ounce of gold. That is what changes. The currencies fluxgate, not gold. 
Egon von Greyerz says August 2019 is in many ways similar to August 1971. You may recall that the decade of the 70s ushered in the first gold bull market as the price of gold rose by more than 2400%. Buckle up. He is issuing the following warning: 
Egon von Greyerz
The world is now standing before a seminal moment and virtually nobody can see it. There has not been a more critical moment in the last 50 years than what we are now facing. In 1971, the world faced a similar situation. At that time, only the Chinese understood the consequences of Nixon’s decision to close the gold window.
The People’s Daily in China said in August 1971:
“These unpopular measures reflect the seriousness of the US economic crisis and the decay and decline of the entire capitalist system.”
The paper went on:
“mark the collapse of capitalist monetary system with the US dollar as its prop”…. “Nixon’s new economic policy cannot extricate the US from financial and economic crisis.”
“The policy is meant to fleece the American working people and to shift the worsening of the US financial and monetary economic crisis onto other countries.”

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About Miles Franklin

Miles Franklin was founded in January, 1990 by David MILES Schectman. David's son, Andy Schectman, our CEO, joined Miles Franklin in 1991. Miles Franklin's primary focus from 1990 through 1998 was the Swiss Annuity and we were one of the two top firms in the industry. In November, 2000, we decided to de-emphasize our focus on off-shore investing and moved primarily into gold and silver, which we felt were about to enter into a long-term bull market cycle. Our timing and our new direction proved to be the right thing to do.

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